A green lease may help to reduce the environmental impact of your business

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26 October, 2021

Richard Clithero
Partner and Head of Department

As businesses tentatively begin to emerge from the pandemic thoughts may finally start to turn to future opportunities and challenges. It appears likely that the next major issue affecting the property world will be energy efficiency and environmental sustainability. With the increasing awareness of environmental matters, landlords and tenants may consider a green lease as a means by which to reduce their environmental impact.

The term "green lease" can be misleading as it is not a specific form of document or standardised form of wording. Rather, it is a general term for different types of provisions and clauses that may be included in a commercial lease with a view to improving the environmental sustainability of a building.

In fact, the green clauses may not be contained within a lease at all, but in a separate side agreement or memorandum that may be intended to only represent a sign of commitment from the parties rather than create clear legally binding obligations. The differences between the type of obligations may even be referred to as "light green" - not legally binding and requires limited commitment to environmental issues, or as "dark green" - legally binding and may require a significant amount of commitment to environmental issues.

A green lease may be considered alongside other environmental responsibilities such as minimum energy efficiency standards (MEES) and energy performance certificates (EPC), to improve the energy efficiency of a building. An EPC is a certificate containing information about the energy efficiency of a building. The current threshold under MEES is that a property should reach an EPC rating of E or better to be lawfully let, but the government has proposed that by 2030 they plan to enforce a minimum EPC standard of 'B,' which for some properties will require significant improvements in energy efficiency. There are therefore compelling reasons for commercial landlords in particular to stay ahead of the curve when it comes to the energy efficiency of their buildings.

It is difficult to produce a standard set of green lease clauses for a landlord and tenant to comply with because of the different types of buildings, different commercial objectives and budgets etc. Green lease clauses will impact provisions such as service charge, consent for alterations, reinstatement at the end of the term and remedies for breach. Therefore, the parties may well cherry-pick clauses in order to adapt to their particular situation and objectives.

There are, of course, barriers to the take up of green leases, not least being the question of costs - who should pay for any environmental works or improvements and why? For example, a landlord may be reluctant to incur costs to carry out improvements to the energy efficiency of a premises only for the tenant to benefit from lower utility costs, yet a tenant may be reluctant to invest in a premises if they have, say, a 5 year lease and the payback for the investment will be perhaps 10 years.

If a landlord and tenant wish to enter into a green lease a collaborative approach will be required, whereby communication and co-operation is fundamental to commit to the joint objective of reducing the environmental impact of the premises.

For more information contact Richard Clithero in our Commercial Property department via email or phone on 0333 207 1159. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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